Earnings adjustment of temporary migrants

Abstract

The strong incentives of migrants to invest into human capital and the positive selective character of migration are the main explanations for the rapid decrease of the earnings gap between migrants and natives, and, in some cases, the cross-over of migrants' earings profiles with those of native workers, as found in a variety of empirical studies on migration to the USA, Canada and Australia. The present paper shows that in the case of temporary migration the optimal investment into country specific human capital should be lower than in the case of permanent migration. Investments may not be sufficient to allow migrants' earnings to catch up with those of native workers. Furthermore, it is shown that migration is positively selective only under certain labor market conditions. Empirical findings support the hypothesis that the migrant's length of stay in the host country has an effect on his investment into human capital and, consequently, on his earnings position. The results strongly suggest the need for carefully differentiating between temporary and permanent migration when investigating migrants' learnings assimilation.